IN THE SPOTLIGHT

Is It Time to Call an End to the Billable Hour?

At DiMassimo Goldstein, the agency I founded over 21 years ago, we have never filled out a timesheet. We’ve never billed a client by the hour. We’ve never charged a client more than we said we would just because we put in more hours than we had expected. In the few cases where prospective clients insisted on a bill-per-hour system, we withdrew from consideration. The policy is a rock-solid part of our culture, and it’s working well for us, so we’re unlikely to change.

In truth, the decision to forgo timesheets was an artifact of a simpler time when an entrepreneur—like myself—could just set policy based on personal experience and inclination. I had worked for an agency or two where employees competed to bill the most hours, where bonuses were pegged to billable hour production, and where—it seemed to me—fiction paid a lot more than reality. In my mind, timesheets were a nuisance at best and a fraud at worst. They were one of the agency staples I wanted to leave behind when I started my own shop.

Recently, I decided to look into the science and research around timesheets and dig into their history in our industry. I pried open my mind a bit and went on a research spree. Here’s what I found: The billable hour is nearly 100 years old. It was invented in 1919 by Reginald Beber Smith, a Boston lawyer who was influenced by the “scientific management” movement. It wasn’t until the mid-1980s that the idea really started to catch on in the agency business. The chief proponent of the billable hour was David Ogilvy, who was likely responding to pressure from his clients to move from the traditional system of 15-percent commissions on media spend. Ogilvy was also adding below-the-line services, such as direct marketing and sales promotion, wherein media spend was not an adequate measure of agency effort. He argued that advertising executives were professionals like lawyers and accountants and that billing by hour would tend to gain advertising professionals the respect they deserved.

Billing hours allows agencies to get paid for the work they do and ties compensation to the agency’s greatest expense: the cost of talent. It can increase profits by allowing agencies to charge more when their people work harder, and it can protect profits by allowing agencies to charge more when they spend more on talent.

Billing hours also gives clients a common metric for understanding and comparing agency costs. In a sense, they have made clients surrogate managers of the agency, with the ability to have a say in staffing on their own accounts. This trend has been accentuated by the growth of strategic sourcing departments to the point where large agencies are under unremitting pressure to reduce their margins. One might argue that the billable hour has been a tool in helping clients keep their agency compensation costs down.

Are clients better served by agencies managing billable hours? There are many reasons to think they are not.

Clients benefit from having the best people on their projects. Timesheets reward agencies for putting the least expensive people on projects.

Clients benefit from working with the most productive creators. Timesheet-driven agencies actually make more money from the least productive creators (i.e., those who bill more hours to produce the same work).

Clients want senior, experienced and well-trained experts on their businesses. The billable hour incentivizes agencies to inflate titles, allowing them to bill more for less expensive talent. Agency veterans regularly bemoan the disappearance of the thorough training programs that were once a ubiquitous staple of working at the best agencies. The billable hour has tended to wipe out non-billable activities, including training, entrepreneurship, and innovation.

Timesheets make clients bear the cost of projects going over time, which puts clients in the position of trying to manage agency resources. This lack of accountability undermines agency managers as well.

Timekeeping rewards busy-ness. Clients want effectiveness.

2. Timekeeping is the enemy of creativity. Many researchers of creativity have pointed out that the frame of mind that creates (right-brain led) is the opposite of the timekeeping frame of mind (left-brain led). There is also evidence that keeping time stresses creative people and undermines both their work habits and their life happiness.

3. Timesheet systems are expensive and time-consuming. Studies have shown that timekeeping, billing and the systems around them actually eat up to 12 percent of agency productivity.

4. The billable hour is too creative. This goes back to my original feeling of revulsion at tracking time. In my experience, the hour spent on timesheets each week was the most creative hour in the agencies where I worked. Creative people are not accountants. At best, the agency people I knew tried to recreate their workweek from their creative memories. At worst, they just made it up or responded to frequent prods, hints and even overt direction from managers.

In fact, a former CEO of David Ogilvy’s agency even did real prison time for orchestrating a pattern of falsifying timesheets. In 2005, Shona Seifert was sentenced to 18 months in prison. Thomas Early, a former senior partner at Ogilvy, was also convicted in the scheme to revise timesheets. The agency had been working for the federal government, which is where what may have been standard operating procedure led to non-standard consequences.

Finally, the billable hour tends to commoditize and homogenize agencies. Instead of having very different brands with well-trained staff and distinct offerings focused on differentiated outputs and unique results, agencies become client staffing services, renting talent by the hour. The only thing that changes is the name of the agency while the forces of commoditization tend to create title-inflated, under-trained collections of individuals who work under client direction with disempowered managers who spend their own billable hours managing time rather than the output and effectiveness of their own employees. As Jerry Seinfeld has said about baseball, “The teams are all the same people. We’re rooting for the uniform.”

So, is it time to end the billable hour? I will you to come to your own conclusions. Please, take all the time you need.

Mark DiMassimo is a writer and brand advocate who serves as Creative Director and Chief of DiMassimo Goldstein, an “inspiring action” agency that he founded in 1996 after a career at J. Walter Thompson and stints at BBDO, J, Chapman Direct Advertising, Deutsch and Kirshenbaum & Bond. He set a goal to start an agency that would bring the benefits of great brand-building to direct model innovators, particularly those that offer life-changing services directly to clients. The promise would be simple: drive up brand value and drive down cost per acquisition. He has been a pioneer in integrating brand communications, buzz marketing, brand advocacy, online marketing, brand storytelling, direct response and branded entertainment for a range of clients, currently including The Bronx Zoo/Wildlife Conservation Society, Jackson Hewitt, TradeStation, Online Trading Academy, Weight Watchers, Affinity Federal Credit Union, Proactiv, National Jewish Health, Sun Basket and Recovery Centers of America, among others.